EPA fuel regs will raise cruise costs 70 percent by 2015
Another major headache is confronting cruise companies operating to Alaska. New U.S. Environmental Protection Agency offshore emissions rules for ocean vessels in U.S. coastal areas effective that went into effect Aug. 1 have raised fuel costs by about 40 percent for cruise ships operating to Alaska.
A further tightening of emission limits effective in 2015 will raise that to almost 70 percent over previous costs. To absorb that cost, the per passenger price of a typical seven-day cruise would have to go up $126.
Cruise operators say they can bear the 40 percent fuel cost hike but not the 70 percent increase, and that major changes in cruise schedules and ports of call are likely in 2015 if some agreement can’t be worked out with EPA to mitigate the effects.
The State of Alaska sued to stop the new fuel rules in July.
Cruise companies like Holland America Lines typically work out their ship deployment schedules as far as 18 months in advance. If changes are made they could show up in the 2014 summer season and surely in 2015.
The 2015 rule change, “would harm us significantly,” said Stein Kruse, president and CEO of Holland America Line.
“We don’t see a way to pass that (higher) cost on to our customers, and we would have to take steps to mitigate the increase which will affect our deployments,” of cruise ships, Kruse said.
Tom Dow, Holland America Line’s government affairs manager, said the current 1 percent sulfur rule in effect since August has increased fuel costs by about 40 percent, adding $220,000 to the fuel cost for a typical 7-day cruise voyage to Alaska.
The estimate for the more stringent 0.1 percent sulfur rule effective in 2015 is for the fuel cost to increase to $380,000 over previous costs for a seven-day trip, or about 69 percent over previous costs, Dow said.
Kruse said Holland America Line charges a variety of prices for their Alaska voyages, including discounted fares, but a typical cost for a 7-day cruise is about $1,000.
The current fuel cost increase, at the 1 percent sulfur rule, could add $73 to that in 2013 and 2014, but the 0.1 percent sulfur rule would add $126 the per-passenger cost in 2015.
Dow said the estimates assume current crude oil prices.
The cost of the emissions rules are greater than were those of a state of Alaska cruise passenger tax imposed in 2006, but then reduced in 2010. The original state passenger “head tax” was $50 per passenger which, when additional port passenger taxes were added, worked out to a tax of about $65 per passenger.
That caused several cruise lines to redeploy vessels away from Alaska. The state later reduced the tax to where it is now about $35 per passenger including the port taxes. This level is bearable, Kruse said, particularly because the revenues go to support local capital improvements that aid cruise ships and passengers.
Kruse said his company is continuing to work with the EPA on some compromise that would mitigate the cost impacts on the cruise lines and still meet EPA’s goals of cleaner air in coastal areas.
“We support the intent of the rules. Requirements to burn cleaner fuels where it matters is fine with us, for example going to zero emissions in ports,” Kruse said. “But a hundred miles out to sea, why burn high quality fuels when there’s very little benefit?”
Cruise lines have some options. The ships typically have fuel-switching capabilities and can switch to clean-burning fuels when near populated areas, and could link to local power sources when in ports, allowing engines to be shut off.
EPA officials were not available to comment on the status of negotiations with the cruise companies.
A key objection by ocean shippers is that EPA’s Emissions Control Area extends 200 miles out to sea off both the U.S. east and west coasts. Kruse said he sees the merit of a 200-mile zone off a heavily populated area like Los Angeles but not off the coasts of Canada and southeast Alaska, which are lightly populated, and particularly when there are east winds blowing emissions to the west, further out to sea.
Vessels operating to and from Alaska, which include cruise ships and cargo ships on regular voyages to the state, are affected heavily because their entire voyage from the Pacific Northwest to Alaska is within the 200-mile regulated zone.
Canada has adopted similar 200-mile emissions control areas off its west and east coasts, although Canada’s rule is not effective until later this year.
Fuel costs weigh heavily on cruise lines operating to Alaska because of the length of voyages from Seattle and Vancouver, B.C., where most ships depart, up the Inside Passage of southeast Alaska and across the Gulf of Alaska to Southcentral Alaska ports.
Atlantic cruises to eastern Canada are also entirely within the emissions control zones of both countries and are similarly affected, Dow said. However, cruises to Mexico and the Caribbean are less affected because the ships are within the U.S. emissions control area for only a short distance, and can then switch fuels.
Also, cargo vessels serving U.S. coastal ports from foreign ports are less affected because they can switch to the low-sulfur fuels only when they pass the 200-mile limit off the U.S. coast.
EPA is negotiating with shipping companies on exemptions to the rule. A recent agreement with Totem Ocean Trailer Express, or TOTE, a cargo carrier operating ships to and from Alaska, will have the company convert to liquefied natural gas to meet emissions goals.
That works for TOTE because its vessels operate exclusively to Alaska but this would not work well for cruise lines, industry sources said, because the companies operate their ships in Alaska only during the summer and move vessels to the Caribbean, the Mediterranean and other warmer destinations in winter.
Kruse said Alaska is an important market for cruise companies. Holland America Line has seven ships operating in Alaska waters this summer, and its sister company, Princess Cruises, also has seven ships in the state. Both are owned by Carnival Cruise Lines.
Holland America Line and Princess have 14 vessels in Alaska between them.
"This represents 14 percent of Carnival’s ships,” Kruse said.